Maybe the Obama Admin is right about free trade after all

The chances of the Obama Administration scoring any kind of major policy victory this year took a big hit when it became clear that there would be a bipartisan movement to torpedo his Trans-Pacific Partnership trade agreement if it didn’t include protections against currency manipulation.

At first, it looked like the opponents of TPP had the evidence on their side. After all, Americans, and their elected officials, have been focusing on wage stagnation. After all, free trade efforts have not been helped by the fact that the proliferation of free trade agreements has coincided with a decades-long stagnation in wage growth.

Opponents of the Trans-Pacific Partnership are now zeroing on currency manipulation, arguing for stronger protections to prevent trading partners from artificially driving down the dollar value of their currencies to give their exporters an advantage. In a recent study, economist Robert E. Scott estimated that the U.S. has lost hundreds of thousands of jobs to places like Mexico and South Korea due to a lack of protection against currency manipulation.

Those who argue against free trade agreements often point to the fact that the nation’s flagship deal, the North American Free Trade Agreement, coincided with a huge increase in America’s trade deficit with Mexico in particular. Before NAFTA was signed, the U.S. had a slight trade surplus with Mexico and a $30 billion trade deficit with Canada. Today, the trade deficit with those two nations totals more than $180 billion.

But in a new report from the centrist think tank Third Way, authors Jim Kessler and Gabe Horwitz argue that while NAFTA may not have “lived up to its promise” of boosting the U.S. economy, trade negotiators have become more adept at including higher labor and environmental standards in the many trade deals that followed NAFTA. The result, according to Kessler and Horwitz, is that the vast majority of trade deals signed into law by Congress in the 21st century have shrunk, rather than increased, the trade deficit and therefore have helped create jobs. They write:

While some 20th Century trade deals didn’t always live up to their promise, deals in the 21st Century have generally been negotiated with higher standards making them a better proxy for the likely impact of new deals like the Trans-Pacific Partnership. In this paper, we analyzed all of the U.S. trade agreements that went into effect since the turn of the century—with 17 countries in all since 2000. Because the U.S. has such a consistent and overwhelming trade surplus in services, in this paper we looked only at whether these deals improved the U.S. balance of trade in goods. Our analysis found the following: nearly all recent trade deals have improved our balance of trade in goods, and in the aggregate the gains have been substantial.

They find that trade deals with 13 of 17 countries since the year 2000 have led to a decrease in the trade deficit, and that in the aggregate, “the balance of trade for goods improved after implementation by an average of $30.2 billion per year in 2014 dollars.”

Such evidence could help convince wavering Congressmen to support TPP, a trade agreement that would cover 40% of the global economy and is a pillar in the President’s plan to bolster America’s influence in Asia. But disagreement over the effects of trade agreements, with supporters pointing to post-2000 deals and detractors pointing to deals with places like Mexico and Korea—which seem to have been bad deals for U.S. workers—shows the limitations of using economics as a policy guide.

The global economy is a very complex engine and it’s difficult to isolate the effects of any policy, even one as big as a free trade agreement. It’s quite possible that U.S. companies would be investing more abroad and wages would be stagnant here at home even if the U.S. didn’t sign such trade treaties with other countries. Economics is a science that performs natural experiments with no control groups. Hard evidence is tough to come by.

Obama economist: Don’t count on the U.S. for global economic growth

One of President Obama’s top economic advisers says the rest of the world may have too much faith in the U.S. recovery.

“If your economic plan is to count on exports to the U.S. [to produce growth], that’s not a plan that I would support,” said Jason Furman, who heads the President’s Council of Economic Advisers. “What Europe needs is more growth. Clearly, domestic demand needs to pick up.”

Furman was talking on Tuesday morning at a conference put together by The Economist magazine.

The U.S. economy has been improving lately. But some have questioned if the U.S. will be dragged down by the rest of the global economy, which appears to be flatlining. Furman said that he is “quite positive” on the U.S. economy for 2015, though he joked that part of his job is to have that view, and pronounce it at conferences. He said that slower growth overseas will be a “headwind” for the U.S., but he thinks that will be more than offset by lower oil prices. He also said that average monthly mortgage and other debt payments in the U.S. are at their lowest levels in a while and that should help boost consumption.

Nonetheless, Furman said he thought the growth of the U.S. economy would not be strong enough to pull the rest of the world out of its funk. U.S. consumption makes up 70% of the U.S. economy; it’s only 5% of Germany’s economy. While the European Central Bank’s recent announcement that it would buy bonds to bring down interest rates will help the region’s economy, Furman said it won’t be enough. He said that European countries have the resources to spend money to boost their own economies, and that it is something they should consider. Last month, the International Monetary Fund downgraded its growth expectations for France, Germany, and Italy. As a whole, Europe’s economy is expected to expand at a rate of just over 1% this year, and not much more in 2016.

Oliver Blanchard, who is the chief economist at the IMF and was talking on the same panel at The Economist conference, disagreed with Furman. He said it was incorrect to say that Europe was still in austerity mode. Budgets are expanding modestly, or not shrinking. But he said that European leaders should be concerned that markets could react negatively to more fiscal stimulus measures.

Furman disagreed, arguing that leaders often say that bond investors will sell at the first sign of stimulus spending but that the market supports such measures. Fiscal stimulus moves in Japan and elsewhere have not caused bond prices to fall, and interest rates to spike, he said.

“We have to make sure we are not inventing a bogeyman who won’t show up,” said Furman. “We are way past the point in Europe where they should be doing a big fiscal stimulus.”

The American consumer may be rejoicing over the dual tailwinds of cheap gas prices and falling unemployment, but much of Corporate America isn’t so sanguine.

On the same morning that the Conference Board announced that consumer confidence reached its highest level since August 2007, the stock market took a nose dive, driven by disappointing earnings announcements by big-name companies like Caterpillar CAT and Dupont DD, and downbeat outlooks from the likes of Pfizer PFE and Bristol-Myers Squibb BMY.

The missed earnings and revised expectations are due in part to a rapidly appreciating dollar, which is being driven up by the relative strength of the U.S. economy as well as the announcement of central bank bond buying in Europe. A more expensive dollar means that U.S. companies are less competitive abroad.

But Caterpillar in particular has been negatively affected by the sharp drop in the price of oil and other commodities. The drops have led energy and mining companies to reduce their investment in the kind of accounts for the bulk of Caterpillar’s sales.

The disappointing news can also be hung on the fact that the rest of the world’s economic outlook isn’t nearly as rosy as it is in the U.S. Both China and Europe have recently reduced their growth forecasts. Meanwhile, emerging markets like Brazil, Turkey, and Russia are reeling amid falling oil prices and whipsawing foreign investment.

In a press release this morning, Caterpillar Chairman and CEO Doug Oberhelman said that the sharp decline in the price of oil is the single biggest factor contributing to its prediction that sales will fall roughly 9% in 2015.

But the company did not discount the impact of falling prices in other commodities, in addition to slow growth in Europe, and relatively slow growth in China.

“We’re not seeing any decent growth out of Europe,” said Mike DeWalt, a Caterpillar vice president said in a conference call this morning with analysts. “The developing countries like Brazil and China, are, shall we say, challenged.”

It’s important to remember that the decline in the price of oil is partly due to slower growth abroad and in China in particular.

Caterpillar’s performance is often seen as a gauge of the health of the global economy because it sells the sort of equipment—construction and mining—that functions as an engine of global economic growth. Caterpillar’s diminished outlook suggests the potential for trouble ahead.

The U.S. economy, by contrast, is not highly dependent on sales abroad—U.S. GDP is composed of just 10% exports, while consumer spending makes up north of 70%. So, while weakness abroad certainly isn’t good for the American economy and it is a bad sign for export-heavy companies like Caterpillar, it’s not something that should worry most workers or business owners stateside.

In the U.S., strong job and GDP growth, low inflation, and the jolt of cheap energy prices should all conspire to make 2015 the strongest year yet in the economic recovery. As long as Europe is able to muddle along and China’s growth doesn’t drop off the table too sharply, the struggles abroad will likely steer clear of America’s shores.

Uruguay’s most unexpected champion of capitalism

José Mujica stood out at the inauguration of a huge pulp mill at Punta Pereira, on Uruguay’s south coast. Winged by suited executives, Mujica, the outgoing president, cut the ceremonial tape late last year while wearing baggy jeans turned up at the ankle, a tawny bomber jacket, and shades.

The casual style offers a hint of Mujica’s loathing of unfettered consumerism, his radical past as an urban guerrilla, and his philosophical musings on socialism. Nevertheless, as his five-year presidential term comes to a close, Uruguay has become a bastion of pragmatic economic policies that favor business and foreign investment.

The mill—built together with a small port for fast exports to Asia, Europe, and North America—will turn Uruguay’s plantations of eucalyptus trees into 1.3 billion tons of pulp a year, making it one of the world’s biggest operations. (Pulp is used to manufacture paper.) Half of the $2.5 billion investment in the mill came from Chile; the other half from Finland.

Even as foreign direct investment slumped by 23% in Latin America and the Caribbean in the first half of 2014, it soared by 9% in Uruguay, according to the United Nations. Uruguay, which has a population of just 3.4 million people, is ranked ninth out of 32 countries in the region for “ease of doing business,” says the World Bank. That is far above neighboring Brazil and Argentina, where nationalist policies—supposed to improve the lives of the downtrodden—have foiled foreign investors and local producers alike, and Venezuela, where a socialist revolution began in 1999.

“I believe we have to favor capitalism, so that its wheels keep turning,” says Mujica, 79, wearing a scruffy fleece in the modest living room of his farmhouse, which he prefers to the presidential mansion, “And then take our quota of resources to give to the weakest. But we should not paralyze it.”

A sewn pennant of a Marxist guerrilla cell that operated in Chile in the 1980s and early 90s hangs on the wall, and a bust of Che Guevara, a leader of the Cuban revolution, sits on the bookcase behind him.

Mujica was a leader of the Tupamaros, a left-wing guerrilla organization that terrorized Uruguay’s repressive government in the 1960s and early 70s. He earned noms de guerre like Facundo, a reference to a provincial caudillo cum murderous outlaw in 19th-century Argentina. In one mission, Mujica robbed a federal judge at gunpoint in his penthouse apartment. He was also wounded six times in a shootout with police.

But even during those violent years, Mujica lobbied for moderation, dialogue, and pacifism. His comrades viewed him as “a sort of armed politician, and not a traditional guerrilla,” according to a 2013 biography by Walter Pernas.

After two jailbreaks, Mujica was imprisoned for a final time in 1972. He was tortured and often starved, eating flies or bars of soap, and chewing on bones thrown to him by military officers.

On his release, in 1985, Mujica looked to the future. He does not, at least publicly, harbor resentment about the past. Embracing the shifting political landscape, he argued that the “fight” for equality should employ “new methods,” and he accepted the limits of mainstream politics.

The Tupamaros merged with other left-wing parties to form a faction of the Broad Front, a center-left coalition that won its first presidential election in 2004. Mujica was an agriculture minister and a senator before he led the coalition to re-election in 2009.

He says that he still believes in unarmed revolutions, but he was willing to conform to the checks and balances of democracy because they did not obstruct him from effecting some change as president. “We’re very used in this world to seeing the economy and inequality grow together,” says Mujica, whose term as president ends on March 1. “In Uruguay, that has not happened. The economy grew and people were lifted out of poverty.”

Under the Broad Front, GDP has grown at an average of 5.6% per year, according to Uruguay’s economy ministry, and as the front expanded social security, the proportion of people living in poverty dropped from 40% to around 12%, according to the ministry.

Mujica says his government opted for a middle ground, favoring private sector projects to spur economic growth and modest interventions to distribute wealth. “The numbers speak for themselves,” says Oya Celasun, the mission chief in Uruguay for the International Monetary Fund: Combined local and foreign investment has risen to 22% of GDP under Mujica from an average of less than 15% in the preceding years, according to the government. The pulp mill at Punta Pereira is the biggest single private investment in Uruguay’s history.

“Mujica decided not to recreate the divisions of the past,” says Jimena Blanco, who monitors the Southern Cone countries for Verisk Maplecroft, a risk analysis firm in London, “That despite [his] ideology, it was about finding common ground.” Blanco says this is the major difference from Argentina, where fractious nationalist policies can strangle business opportunities.

Uruguay’s beef production industry, for instance, is thriving as the government funds a comprehensive system for electronically tracking cattle, which has helped it access demanding foreign markets. Conversely, the industry in Argentina has been devastated by periodic export bans and domestic price controls. Uruguay has also developed one of Latin America’s leading software industries by easing the path for foreign startups, many of which have fled Argentina.

“Uruguay is a boutique country,” says Claudio Piacenza, who heads Uruguay’s national chamber of commerce, referring to its small size and friendly investment climate. But Piacenza takes issue with the nation’s fiscal deficit, which has helped fuel inflation; the influence of labor unions; and the continued dominance in some sectors of state-run companies.

Mujica is aware of the criticism he faces across the political spectrum. “We voted for him because he was a guerrilla,” says Alejandro Lema, 80, a frustrated Socialist Party member. “But we wanted more. The results were not what we hoped for.”

Some Uruguayans have grown weary of Mujica’s chaotic leadership style, including how he dealt with the closure of Pluna, the national airline. In mid-2012, the government intervened to save Pluna, but it folded just weeks later, a failure that was compounded by scandals shrouding the liquidation. And Mujica’s communication skills have, at times, left much to be desired. He has often improvised his public statements and then backtracked on them.

Still, the Broad Front was re-elected to another five-year term on Nov. 30, promising the continuation of the policies that have worked in Uruguay thus far. (Mujica, who was constitutionally barred from running for a second consecutive presidential term, was voted back into the senate.)

Social policy was perhaps the best outlet for Mujica’s liberal beliefs. He gave the state control of marijuana production and sales, and legalized abortion and gay marriage. He also channelled these beliefs through his lifestyle choices. Mujica is donating around 62% of his $11,750 monthly salary to a housing program for the poor, and he has given nearly $400,000 to the program since his term began, according to a sworn statement he filed last April. Living simply in his log-heated farmhouse frees him from the shackles of consumerism, Mujica says, but he concedes that his views remain unpopular.

“Life does not deserved to be turned into a slave for the pure and exclusive accumulation of junk,” he says. “But I’m not stupid. I know this is not an economic recipe I can apply to the people.”

Melinda Gates’ big prediction for women

In the next 15 years, the lives of people living in the world’s poorest countries will improve faster than at any other time in history, says Melinda Gates. A big catalyst for all of this positive change? Mobile phones.

That’s one major takeaway from Bill and Melinda Gates’ annual letter outlining the global trends that the billionaire couple is focused on in 2015. The financial lives of the poor are complicated, they write, and the poorest people around the world do not have access to financial services. By 2030, the explosion in digital banking will give the poor more control over their money and help lift them out of poverty.

The key to that transformation will be mobile phones: In 15 years, 2 billion people who don’t have a bank account today will be saving money and making payments with their phones.

And if women — as opposed to only the husbands — have access to phones, Melinda predicts that the economic transformation across countries will be even more remarkable.

“Women talk about if they can get hooked up to the banking services which have become ubiquitous in places like Kenya and Tanzania, they can then save small amounts of money,” she said in a meeting with a handful of reporters on Wednesday. “Saving a dollar a day or two dollars a day could change everything” for women. And their children.

Since launching the Bill and Melinda Gates Foundation in 2000, the foundation has distributed $31.6 billion in grants, mainly for global health projects in some 100 countries. The Gates believe that as more women save money through mobile banking, there will be a positive ripple effect.

More women will be able to save money and control their finances. In turn, they will be able to use savings for things like health services for their families. By 2030, the number of children around the world who die before the age of five will be 1 in 40, compared to 1 in 10 in 1990, according to the Gates Foundation.

With fewer infant deaths, more families will invest more in their children’s education — which, in turn, would stimulate the global economy, according to the Gates Foundation.

Gates spoke about how much information that people in the Western world take for granted that can be revolutionary for people in poorer countries. Seven out of ten people living in sub-Saharan Africa are farmers, she notes. If these families had access to a mobile phone, they could find out how much their crops are going for in the city market before they make the trip in — which would allow them to more effectively price their own crops and increase profits.

“Fifteen years from now, I want to see these farmers with healthier kids, getting more yield off their farms, getting their boys and girls into the education system and persisting through secondary school,” she said. “That is transformative in their lives.”

Yet the Gates’ acknowledge in their letter that there are cultural challenges that make it difficult for women in many countries to gain access to mobile phones without their husbands’ consent. In Bangladesh, for example, only 46% of women own a phone, compared with 76% of men.

Getting men to think more about the economic benefits of giving their wife access to mobile banking and sending their daughters to school through secondary education is challenging, says Gates. But by rooting the discussion in what is important them, mainly the health of their children, men are more likely to see the benefits of empowering the women in their family to succeed.

“Men and boys have to be a part of it,” she said “They are often the ones making the decisions about [what to do] with very little resources in their family and who they are going to educate.”

CEOs losing faith in global economy, bullish on their own companies

Is it confidence or cognitive dissonance? While CEOs are significantly more pessimistic about the global economy’s growth prospects than they were last year, they remain just as confident that their own company’s revenues will grow, according to PwC’s 18th Annual Global CEO Survey.

Learn more about shifts in the global economy from Fortune’s video team:

Results of the survey of more 1,300 CEOs worldwide were released on Tuesday at the opening of the World Economic Forum Annual Meeting in Davos, Switzerland.

Only 37% of CEOs surveyed think that global economic growth will improve in 2015, a drop from the 44% who made the same prediction last year. Seventeen percent of the CEOs who participated in this year’s study believe that global economic growth will decline — more than twice as many as last year’s 7%. Meanwhile, like last year, 39% said they are “very confident” that their companies will see revenue growth over the next 12 months.

CEO confidence varied by region. Chief executives in Asia Pacific expressed the most optimism about the global economy, with 45% predicting improvement, compared with 16% in Central and Eastern Europe. North American CEOs fell in the middle, with 37% expecting to see global economic growth.

Regarding CEOs’ predictions for their own companies, the geographic pattern held up: 45% of CEOs in Asia Pacific expected their companies’ revenue to grow, compared to 30% in Central and Eastern Europe who expressed the same sentiment. In North America, 43% of CEOs anticipated revenue growth for their companies. Also expressing confidence on both measures were CEOs in the Middle East, where 44% predicted both improvements in global economic growth and their own revenue growth.

Country-by-country, CEOs in India were most optimistic: 59% expect improvements in global economic growth in 2015 and 62% anticipate their companies to grow. And in the U.S., CEOs are more confident about their companies than they are about the world: 29% see a better year for the global economy, and 46% predict a good year for their companies.

The U.S. was rated the most important growth market, overtaking China for the first time since the survey began asking the question five years ago. Thirty-eight percent of CEOs see the U.S. as among their top-three overseas growth markets, compared to 34% who view China in the same way.

Other noteworthy findings: 78% of CEOs consider excessive government regulation their biggest concern, especially chief executives in Argentina (98%), Venezuela (96%), and the U.S. (90%). They are also cautiously eyeing digital technology, with 58% saying they are concerned about the speed at which technology changes — up from 47% last year. And while only 64% of CEOs say their organization has a diversity and inclusiveness strategy, 85% of those that do have one claim that it has increased their bottom line.

At Davos, expect talk of oil, terrorism, and sex scandals

The CEOs, top academics, and world leaders—many of whom have traveled by private jet and then helicopter to Davos, a secluded Swiss ski town—for this year’s World Economic Forum have come officially to discuss how power in the global economy is shifting, from traditional leaders like the U.S. to the emerging markets.

Instead, on the eve of the conference, which officially kicks off on Tuesday night, there were signs that the economic order of the past few decades seems intact. The latest sign came on Monday, when Chinese stocks plunged 8%, their largest drop in six years. Meanwhile, Brazil’s economy is stagnant and the collapse in oil prices has pushed Russia into a crippling recession. At the same time, U.S. GDP rose 5% in the third quarter, once again making the nation the driver of the world’s economy. That’s likely to lead much of the talk in Davos this year.

And while the monied men—and they are, once again, mostly men—have come to talk economics and global policy, at least some of that high-minded fare will be overshadowed by more salacious talk. The U.K.’s Prince Andrew, who is attending the World Economic Forum this year, is likely to get hit with questions about a scandal with an American woman, who claims he used her as a sex slave when she was 17. It will be the first time Prince Andrew has been in public since the allegations were made.

The World Economic Forum’s official agenda often gets pushed aside by world events that unfold while the powerful are walled in by Davos’ peaks. But it has been six years since leaders in Davos were meeting in the midst of what looks to be growing economic turmoil. And it’s the first time in a while where at least a portion of that instability is coming from the conference’s home turf.

European leaders will be speaking on the eve, once again, of a vote in Greece that could break up the euro. That and the plunging price of oil threaten to hurl the world’s financial system back into tumult.

Officially, the title of this year’s World Economic Forum is “The New Global Context.” The economic context that has emerged in the past few months is one of cheaper oil and instability in economies in Russia, Europe, and, most recently, China. That’s likely to make oil the spotlight of any discussion at Davos. On Wednesday, the secretary-general of the Organization of Petroleum Exporting Countries (OPEC) Salem Adballa El Badri will speak on a panel with Arkady Dvorkovich, deputy prime minister of Russia. Also on the panel will be Khalid Al Falih, the CEO of Saudi Aramco, the Saudi Arabian oil company. The discussion will likely focus on whether the drop in oil prices is supply-driven, a gambit by Saudi Arabia and other nations to drive out other higher cost oil suppliers, or if it’s a sign that the world economy is slowing more dramatically than it may initially seem.

Central bankers around the world should expect some criticism, and that includes those in Switzerland, who last week surprised the world, causing currencies around the world to tumble compared to the Swiss franc. On Wednesday morning, New York University Professor Nouriel Roubini and hedge funder Paul Singer, both of whom have criticized the Federal Reserve for keeping interest rates near zero for so long, will talk. This summer, Singer said that the rise in the U.S. markets was based on fake money from the Fed and that it was not sustainable.

Davos is known for its high-powered panel discussions. The highest wattage finance conversation will come on Thursday and will likely focus on what could happen when the Fed begins to raise interest rates. That panel will include Goldman Sachs Chief Operating Officer Gary Cohn; Ray Dalio, who manages the largest hedge fund in the world; Harvard professor and former Treasury Secretary Larry Summers; and Christine Lagarde, who is head of the International Monetary Fund.

On Thursday afternoon, Microsoft CEO Satya Nedella will debate the future of tech with Facebook’s Sheryl Sandberg and Google’s Eric Schmidt. Also talking will be Yahoo’s Marissa Mayer. But perhaps the hottest tech ticket at Davos, given the state of China’s economy, is to hear Alibaba’s CEO Jack Ma, who will be speaking Friday morning. In September, the Chinese online retail giant raised $26 billion on the New York Stock Exchange, in the biggest IPO in U.S. history.

Income inequality is a perennial topic at the World Economic Forum. But the discussion of inequality at Davos tends to be impersonal and focus on rich nations versus poor nations. But influential research group Oxfam has attempted to make the issue more personal this year. On Monday, the charity Oxfam released a report targeted at the World Economic Forum that said the world’s wealthiest 1% are close to owning as much wealth as the rest of the globe combined. Davos gets its share of that 1%. Also, President Obama’s State of the Union Address on Tuesday will likely focus on income inequality, which could make it a larger part of the discussion at Davos.

Also, given the recent attacks in Paris, terrorism is likely to be a topic of conversation in Davos. French President Francois Hollande will address the conference on Friday.

U.S. officials have been somewhat absent in recent years at Davos, but they are slated to return this year. Secretary of State John Kerry, who was criticized for not participating in demonstrations against terrorism in France, will address the conference on Friday. U.S. Treasury Secretary Jack Lew is also slated to be at Davos, but he is not scheduled to publicly address conference attendees. Other U.S. officials or politicians on the attendance list include Penny Pritzker, the Secretary of Commerce; and Darrell Issa, the congressman from California. Former U.S. House of Representatives Majority Leader Eric Cantor will also be at Davos, but this year as an investment banker, for boutique firm Moelis & Co.

For the first time, the World Economic Forum will hold a discussion of gay and lesbian rights on its official program. But likely to get as much buzz as the panel is the fact that it won’t take place until Saturday, when many of the conference’s rich and powerful have already decamped or have headed to the ski slopes.

If gas is so cheap, why do retail sales stink?

Stocks are up modestly Thursday, following a four-day slump capped by a more than 1% decline in the Dow Jones Index on Wednesday. The market dip came on the heels of a Census report on retail sales that showed a big drop in spending by Americans in December.

So, where is the bounce the economy was supposed to get from cheap gas at the pump?

Some analysts argue that consumers have simply been pocketing the extra money they have been saving on gas, using it to pay down debt or bolster their savings. Others have a far gloomier story to tell.

Jim Bianco, president of Bianco Research, argues that falling oil prices is largely the result of a quickly slowing global economy and may not be an opportunity for faster growth here at home. He put together the following chart, which shows the relationship between the price of WTI crude and expectations for global growth:

Here’s what Bianco has to say about the correlation:

The recent high in crude oil was $107 on July 23. It is now 58% off that high. Only two other declines were similar in magnitude, the 1986 collapse and the post-Gulf War collapse in 1991.

What is happening to crude oil is epic and historic. Moves of this magnitude are not random noise. Something changed to cause this to happen. This is what economists do not understand. They think this was either a random event or a supply glut even though none of the supply data supports this idea.

Bianco argues that the falling price of oil is simply the result of a quickly slowing global economy. But others aren’t so sure. Neil Dutta, head of economics at Renaissance Macro Research, writes in a note to clients that the decline in gas prices shouldn’t have been expected to effect retail sales in December, as his models show that consumer spending is affected by gas price changes only after about six months following the change in price. Therefore, “the tailwind from gasoline is more of a 2015 story than a 2014 one,” Dutta wrote on Wednesday.

Meanwhile, Jim O’Sullivan of High Frequency Economics, points out that Wednesday’s disappointing retail sales numbers come following several months of better than expected reports. In addition, O’Sullivan wrote in a note to clients Wednesday, “There is [no] basis for believing the weakness in December alone represents a change in the trend,” pointing out that in past years, December retail sales data has been unusually weak, “suggesting seasonal adjustment problems.”

O’Sullivan argues that consumer confidence has continued to strengthen, buoyed by falling gas prices. There’s no reason, in his view, to assume that yesterday’s retail sales numbers should be taken as a sign of a slowing U.S. economy.

The difference in these two views is likely a matter of emphasis. The driving force for falling oil is most likely general economic weakness abroad, but that doesn’t mean that some of the decline isn’t also because of increased energy production. And just because growth abroad is slowing, that doesn’t mean that this trend has to seriously crimp economic growth at home. In the U.S., exports account for about 13% of output, and most of those exports go to Canada and Mexico, two places that are not expected to underperform in coming months.

So while declining oil is probably a sign of global economic weakness, the U.S. economy may very well benefit from it in 2015.

The world’s biggest winners and losers from cheap oil, in one chart

The Philippines is going to crush it. And Norway, unfortunately, is in for some hard times.

That’s just two of the findings from research firm Oxford Economics, which recently set out to determine what cheap oil would mean for the world’s economy. And they think they figured it out.

Oxford’s report is titled “Oil-ipedia!” and says at the top, “This note does what it says on the tin—it provides much of what you need to about the impact of oil price declines.” And the authors write that if you don’t see what you want, they will be happy to send you their 17-page, 11-variable spreadsheet. (I’ve got it. It’s comprehensive.)

The chart at the top of this article is from data in the report and it looks at what countries will lose and gain the most from cheap oil. For most countries around the world, cheap oil is a good thing. Most countries benefit. And many of the countries getting a boost could use it these days: France, Brazil, and China. Meanwhile, the pain in Russia, Saudi Arabia, and, yes, Norway, is pretty severe. Still, even combined, the net losers do not make up a large part of the world’s economy.

Some caveats: This chart is based on what will happen in 2015 if oil is at $40 a barrel. So prices would have to drop a bit more from their current levels and stay there for a while. Also, it’s hard to determine why the Philippines does so much better than everyone else. I asked one of the economists who worked on Oxford’s research, and he couldn’t explain. Yes, the Philippines doesn’t produce oil, or a lot of it, and it’s an island nation that has to import what it wants. But Japan, another island nation, gets a very little boost from low oil prices in Oxford’s model.

One explanation is that Oxford includes the effect that oil prices could have on monetary policy. Lower oil prices would cause inflation to drop and potentially allow the Philippines to lower its 4% interest rate. Japan’s interest rates are already as low as they can go, so no boost from lower inflation there. What’s more, developing nation’s are less efficient, so the Philippines has a greater demand for oil relative to its population.

So, take the data with a grain of salt. But the general thesis appears to be accurate: A world with lower oil generally looks pretty good.

Then why have markets reacted so negatively to the drop in oil? The losses from lower oil prices are concentrated in the oil and gas sector and generally among larger companies. And it’s pretty clear that Exxon XOM and some others are going to take a hit. Meanwhile, the gains from low oil prices are spread out to consumers everywhere. Which companies will benefit is harder to determine. And Oxford’s model doesn’t factor in potential financial crises. So, if Russia’s concentrated problems boil over, as they did in 1998, to other financial markets, then you could see wider problems.

Oxford’s research also suggests that the markets appear to be overreacting negatively. In fact, lower oil prices could add nearly 1 percentage point to U.S. GDP, potentially increasing growth by a quarter. That’s a good thing. Right now, the market seems to be ignoring that.

Russian economy suffers first contraction since global crisis

Russia’s economy shrank sharply in November and the ruble resumed its slide on Monday as Western sanctions and a slump in oil prices combined to inflict the first contraction in GDP since the global financial crisis.

The Economy Ministry said gross domestic product shrank 0.5 percent last month, the first drop since October 2009. With oil exports forming the backbone of the economy, analysts said the contraction is likely to worsen.

The slide on the oil market accelerated this month after the exporters’ group OPEC refused to cut output, and prices are down almost 50 percent from a peak in June. On top of this, the sanctions imposed over Moscow’s role in the Ukraine crisis have deterred foreign investment and led to over $100 billion flooding out of the Russian economy this year.

“With the current oil price we expect things to get worse. There is no cause for optimism,” said Dmitry Polevoy, chief economist for Russia and CIS at ING Bank in Moscow. “This is linked to sanctions first of all, oil and the panic we saw on the market in December. The damage to the banking system and consumer sentiment will take a long time to repair.”

The sanctions have severely reduced the ability of Russian companies to borrow abroad, triggering the worst currency crisis since Russia defaulted on its debt in 1998.

The ruble, which had strengthened on Friday, slumped over 6 percent against the dollar in early trade on Monday in thin trade, although it later regained some of the losses.

Overall the ruble’s weakness will inevitably lead to higher inflation next year by pushing up the cost of imports, threatening President Vladimir Putin’s reputation for ensuring Russia’s prosperity.

Government ministries forecast the slump in oil prices will lead to a 4 percent contraction of the economy next year and that inflation could exceed 10 percent.

Falling ruble
The ruble had lost more than half of its value at one stage in December, although it has recovered since then after the government introduced informal capital controls and raised interest rates steeply.

The government issued orders to large state-controlled oil and gas exporters Gazprom and Rosneft to sell some of their dollar revenues to shore up the ruble.

Russians have kept a wary eye on the exchange rate since the collapse of the Soviet Union. Hyper-inflation wiped out their savings over several years in the early 1990s and the ruble collapsed again in 1998.

At 1400 GMT, the ruble had lost over 3 percent against the dollar and was trading at 56.00, hurt by exporters scaling back foreign-currency sales after meeting their end-of-month tax payments.

The Russian currency is much weaker than the 30-35 seen in the first half of the year but well up from an all-time low of around 80 per dollar in mid-December.

The ruble’s slide has prompted huge buying of foreign currency in Russia and heavy withdrawals of bank deposits, heaping pressure on a vulnerable banking sector whose access to Western capital markets is restricted by the sanctions.

On Friday, Russian authorities also significantly scaled up rescue funds for Trust Bank, saying they would provide up to $2.4 billion in loans to bail out the mid-sized lender, the first bank to fall victim to the crisis.